On a conference call regarding the merger, Burger King CEO Daniel
Schwartz said the preferred equity portion of the deal's
financing, which is what Buffett is providing, would carry a 9%
coupon.

Preferred equity, also called preferred stock or just
"preferreds," earns interest at a higher rate than bonds, but it
also carries slightly more risk. If a company defaults, preferred
equity investors are "junior" to all bondholders. Basically, they
(most likely) get paid back second-to-last (after all
bondholders, before common equity holders) if the company
defaults.

So if Burger King doesn't go out of business, it looks like a
pretty good deal for Buffett. Except some of the optics of the
deal aren't great.

Tax Inversion?

Burger King's
deal to acquire Tim Hortons is also a "tax inversion," or a
deal in which a company based in the U.S. acquires a foreign
company and moves its tax base.

The combined Burger King-Tim Hortons entity will be based in
Canada, though both companies will maintain their physical
headquarters in Miami and Oakville, Ontario, respectively.

On Monday night,
The Wall Street Journal broke the news that Buffett was
involved in financing the deal, which produced some scorn and
outrage on Twitter. Among other comments, this backlash was largely
related to Buffett's past commentary about taxes and tax reform,
which he partly outlined in a 2012 op-ed in The New York Times
called "A
Minimum Tax for the Wealthy."

The Financial
Times interviewed Buffett on Tuesday, and Buffett told
the paper that the deal was not about taxes, saying that the
combined company would be based in Canada because of Tim Hortons'
"strong roots" north of the border. Buffett has also worked with
3G Capital — which owns 70% of Burger King — in the past, working
with the firm on Buffett's 2013 buyout of H.J.
Heinz.

On a call with analysts Tuesday morning, Burger King and Tim
Hortons management emphasized repeatedly that the deal was not
driven by taxes.

And over at Bloomberg View,
Matt Levine had a great, simple breakdown of why the "tax
inversion" would not quite work for this deal.
In short, Levine outlined that you can move your corporate
headquarters overseas, then make and license a product from this
foreign-based subsidiary to a U.S. subsidiary that sells it,
which doesn't really work when you're selling burgers and
coffee.

A Private Equity Company That Sells Burgers

On Tuesday's call with analysts, Burger King and Tim Hortons also
had some interesting commentary about potential "synergies"
between the companies after the merger.

Basically, analysts wanted to know if we would be seeing burgers
in Tim Hortons coffee joints and Tim Hortons coffee in Burger
King restaurants. The answer: "Absolutely
not."

Frankly,
management from both companies on the call were focused on
emphasizing that Tim Hortons would remain a Canada-based,
Canadian-run company despite Burger King moving in.

And as BI's
Hayley Peterson has written, Burger King's 33-year-old CEO
Josh Schwartz is an alumnus of 3G Capital, and during his time
leading Burger King he has slashed costs at the company.

Schwartz also cut the number of restaurants owned by the company
to just 52 of the company's 13,667 locations. This has significantly
boosted profits at Burger King, which grew net income to $233.7
million in 2013 from $117.7 million the prior year.

And a quick look at Tim Hortons annual report shows a company
that has a ton of sales but could be more profitable if some
costs were reduced. Burger King and its management team most
likely see the same.